Shock and Awe

By

Alan Abelson

Updated Sept. 11, 2006 12:01 a.m. ET

Order Reprints

Print Article

Text size

FIVE YEARS. ONLY FIVE YEARS? Or, is the proper response: Gosh, has it been that long? Either will do. For as we contemplate the lapsed days, months and years from that indelible day to this otherwise unexceptional one, we're beset by a swirl of ambiguous, often contradictory, sensations that nicely reflect the unsettling fact that since 9/11, everything has changed and nothing is different.

The changes in the past half decade have been numerous, various and unlikely, and yet so seamlessly woven into the familiar fabric of our daily lives that it's necessary to stop and consider merely to remember that once upon a time they didn't exist. But the memory of just such a time, when you could board an aircraft with the kitchen sink in tow and not elicit even a raised eyebrow, or enter a public building without flashing a laundry ticket or some other form of infallible identification, remains firmly lodged in the recesses of our minds. And the memory of such a time still forms the durable template of our desires and ambitions.

People may no longer be able to carry hair gel onto a plane, but they haven't lost their capacity for curiosity nor their eagerness to travel far and wide to satisfy it. Fear may deter a visit to the pyramids or Bali, even London. But nothing apparently can dissuade the pullulating masses from descending, cameras at the ready, on the terrorists' No. 1 target of choice, Manhattan.

In some critical ways, the history of the past five years has been shaped as much by what hasn't happened as by 9/11 itself. And what hasn't happened most notably is, of course, an encore of 9/11. Generous to a fault, we'd like to credit this blessed non-happening to the zeal and effectiveness of those charged with ensuring the homeland's security. But a dispassionate qualitative analysis of our putative protectors forces us to conclude we'd be closer to the truth if we credited the fact that we've never, not once, in these five long years uncrossed our fingers.

The absence of new attacks, whether due to a failure of nerve or imagination by our enemies or simple good luck on our part, is in no small measure responsible for enabling us to resume our normal pursuits and indulge our usual appetites. While we yield to no man in our appreciation of Americans' pluck under pressure, we're also painfully aware of fear's awesome inhibiting power, and so we think the absence or even diminution of it merits a nod for helping the country to regain and maintain its composure after the trauma of 9/11.

We weren't, to be sure, involved in Iraq five years ago. That involvement has not been of a piece with our experience in other wars, except possibly Vietnam. Iraq increasingly is more like a civil war than a battle against a hostile state and, apart from ourselves, the combatants are a motley bunch made up mostly of Iraqis with a fair sprinkling of foreign thugs and terrorists (a difference without a distinction).

It's a war, too, that impinges directly on only a small slice of our population and a war, unlike all our other wars, including Vietnam, that has made almost no immediate onerous demands, even financial ones, on the citizenry at large. In consequence, even though it has taken a fearsome toll in life, limb and national treasure and occasions exclamatory headlines, the war in Iraq has somehow retained a peculiarly remote status: something that we're all aware of, intermittently concerned about and, if the polls are to be believed, increasingly despair of, but doesn't intrude on the rhythm of everyday living.

The economy since 9/11 has been notable for a subdued but steady recovery from this century's first and shallow recession, a recovery punctuated by a clutch of huge booms or bubbles (depending on whether you've gone long or short) in corporate profits, housing, commodities and exotic markets (Bulgaria, anyone? It's up, reports the estimable Joe Quinlan of Bank of America's Investment Strategies Group, an astounding 1,335% in this span.)

Spurred by credit standards that went 10 degrees beyond lax, interest rates that were barely this side of zero and maniacal speculation, home building went through the roof. Only in recent months has this great housing fever broken under the combined weight of vast inventories, loony prices and daunting unaffordability.

The once-in-a-generation explosion in commodities triggered very much by the insatiable Chinese was paced by energy: Crude on 9/11/01 was a couple of bucks below $30 a barrel and reached nearly $80 this year before, only recently, retreating to the 60s. Metals, precious and base both, became red-hot items. Gold more than doubled with something to spare to above $600 an ounce, and for the first time since the early 'Eighties, talk was heard in the watering holes frequented by futures traders of $1,000 an ounce (there are even some technicians who are predicting that price without hoisting a few). Nothing shabby about copper's performance, either: It has more than quadrupled.

Despite warnings from the usual killjoys (modesty prevents us from using actual names) of imminent exhaustion, the consumer since 9/11 never paused to draw a breath but kept on spending, year in, year out, like a drunken sailor (the simile is becoming rather an anachronism, if only because drunken sailors no longer can compete with today's consumer when it comes to spending).

Not the smallest spur to such prodigality has been the consumer's ability to turn the astronomically appreciating value of his abode into rivers of spendable cash. It's at least conceivable that with housing on the skids, those rivers are fast running dry, and our all dire forebodings, however long delayed, might actually -- and finally -- come true. (We adhere religiously to the somewhat shopworn but still trusty advice passed on to every novice forecaster on what to do when his forecast goes awry -- keep forecasting.)

As to corporate profits, easily one of the great inventions of economic man, they've been on a terrific tear. Aided by the pressure on labor from unrelenting competition in cheap-wage countries like China and India, the profits of U.S. companies have been ballooning to all-time peaks. From less than 5% of GDP back in the fall of '01, they've shot straight up to, at last measure, over 11% of GDP. We might note that Stephanie Pomboy of MacroMavens, from whom we copped the numbers, traces part of the great leap forward in corporate earnings to the rapidly disappearing boom in housing, since financials obviously provided the juice for much of that boom, and financials, in turn, accounted for 46% of overall corporate profits growth in the last year.

Undeniably, there has been a strong speculative cast to economic growth over the past five years. And while participation has been fairly wide, especially in the housing bubble, it's no secret that wages and salaries in the real world (that excludes Wall Street and its various tributaries) have barely kept pace with inflation, even as the government measures it. Unless Mr. Bernanke can blow another bubble in a hurry (and rumor has it that Alan Greenspan pretty well used up the bubble-making material before he left the Fed), the paycheck lag could begin to hurt.

On balance, we suspect, just as a lot of folks survived the equity bust ($7 trillion went down the drain) and saved enough of their winnings to invest another day, the housing bust, the beginnings of which we're now witnessing, for all it may wreak more damage than the crash in stocks and deliver a much bigger shock to the economy, won't mean the end of the world. Survival is not the issue; prospering will be, and for quite a stretch, we suspect.

Besides the evident woe to unlucky homeowners who paid too much for their houses or took too much equity out of them or are burdened with too much mortgage in an unforgiving market, the coming collapse in housing is destined to prove especially bad news for Uncle Sam. For a consumer recession in a stagnant-salary environment, which is what appears to be in the cards, obviously will take big bites out of tax receipts and cut down sharply on government revenue.

And as Joe Quinlan points out, the one glaring hole in the post-9/11 picture is the nation's finances. In fiscal 2001, he recounts, "America's fiscal house was in decent shape, with the U.S. actually posting a budget surplus of $127 billion in the fiscal year 2001," making it four years in a row in the black. Since 9/11, tax cuts and a three-front war (terrorism, Afghanistan and Iraq) have made huge federal budget deficits "the order of the day."

Nor are our dealings with the rest of the planet anything to write home about. "America's status as the world's largest debtor nation has only increased over the past five years," Joe mordantly observes. The U.S. net investment position totaled minus $2.4 trillion in '04, a formidable 20%-plus of our GDP. And while foreigners have been only too happy to lend us the money to paper over the gaps in our finances, they may have second thoughts if and when the economy hits a really rough patch.

We don't want to mark the anniversary of 9/11 by ending on a downbeat. So we won't. It was one ugly business. But we got through it, bloodied but unbowed. And there hasn't been a repeat performance (our fingers are still firmly crossed).

MOST DECIDEDLYWHAT HASN'T CHANGED since 9/11 is the inanity rife in the executive suite. Why do we think this will not come as a total shock to you?

Examples, of course, abound. But, we're also sure it won't surprise you, if we offer, as Exhibit A, Hewlett-Packard and its chairperson, named Dunn (which, we suspect, she will soon be).

By this time, you're doubtless familiar with the whole smarmy story. Ms. Dunn, whose resume includes a stint as CEO of Barclays Global Investors, got all worked up over some leaks of H-P directors' confabs. Like at all board meetings, no serious business took place, so the stuff that was leaked would be of no interest to such subversive outfits as al Qaeda or Dell. But it was enough to send Ms. Dunn stomping off to a gumshoeing enterprise to root out the dastardly leaker.

The gumshoers, in turn, reluctant to soil their own lily-white hands, procured a private eye well versed in pretexting, an eminently sleazy practice in which the perpetrator steals phone records by conning the phone company into believing he's the person whose records he's stealing.

The prime leaker suspect turned out to be one George A. Keyworth II, a long-time H-P director, and Ms. Dunn promptly tried to give him the heave-ho. But he wasn't having any of it. A fellow board member, Tom Perkins, quit in disgust at the whole shoddy undertaking, and voiced his displeasure loudly enough to reach the tender ears of the SEC and the attorney general of California, who called the sneaky action by H-P "colossally stupid." Our sentiment exactly.

What strikes us as positively weird is that the rest of the board, besides Mr. Keyworth and Mr. Perkins, seemingly had no objections to using sneak surveillance techniques in such a good cause. Provided, of course, they were served their usual succulent lunch after the next board meeting.

We have a strong hunch, for what it's worth, that Bill Hewlett and David Packard wouldn't have approved. Back in 1995, we reviewed a charming little book for the Times entitled The H-P Way that Packard wrote describing how Hewlett and he started the company in the proverbial garage and nurtured it into the multi-billion-dollar goliath it became.

The writing was plain, even a bit stiff, but Packard came across as smart, dedicated to fellow H-P employees and a ramrod-straight guy. What caught our eye leafing through the book again last week was a chapter entitled "Trust in People." Which Packard and Hewlett manifestly had in spades, and which seems to be conspicuous by its absence at their old company these days. Rather sad in its way, we think.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.